Derivative Instruments

The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, commodity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. The Company also may enter into and has previously issued financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or as embedded derivative instruments, such as certain GMWB riders included with certain variable annuity products.

Strategies that Qualify for Hedge Accounting

Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 of these financial statements. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or liability contracts. The hedge strategies by hedge accounting designation include:

Cash Flow Hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on floating-rate fixed maturity securities to fixed rates. The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the future purchase of fixed-rate securities, primarily to hedge interest rate risk inherent in the assumptions used to price certain product liabilities.

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Fair Value Hedges

Interest rate swaps are used to hedge the changes in fair value of fixed maturity securities due to fluctuations in interest rates. These swaps are typically used to manage interest rate duration.

Non-qualifying Strategies

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's variable annuity products as well as the hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities, equities and liabilities do not qualify for hedge accounting.

The non-qualifying strategies include:

Interest Rate Swaps, Swaptions, and Futures

The Company uses interest rate swaps, swaptions, and futures to manage interest rate duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of December 31, 2016 and 2015, the notional amount of interest rate swaps in offsetting relationships was $2.7 billion and $4.6 billion, respectively.

Foreign Currency Swaps and Forwards

Foreign currency forwards are used to hedge non-U.S. dollar denominated cash and equity securities. The Company also enters into foreign currency swaps and forwards to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.

Fixed Payout Annuity Hedge

The Company has obligations for certain yen denominated fixed payout annuities under an assumed reinsurance contract. The Company invests in U.S. dollar denominated assets to support the assumed reinsurance liability. The Company has in place pay U.S. dollar, receive yen swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.

Credit Contracts

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk related to certain structured fixed maturity securities that have embedded credit derivatives, which reference a standard index of corporate securities. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity Index Swaps and Options

The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. During 2015, the Company entered into a total return swap to hedge equity risk of specific common stock investments which were accounted for using fair value option in order to align the accounting treatment within net realized capital gains (losses). The swap matured in January 2016 and the specific common stock investments were sold at that time. In addition, the Company formerly offered certain equity indexed products that remain in force, a portion of which contain embedded derivatives that require changes in value to be bifurcated from the host contract. The Company uses equity index swaps to economically hedge the equity volatility risk associated with the equity indexed products.

Commodity Contracts

The Company has used put option contracts on oil futures to partially offset potential losses related to certain fixed maturity securities that could be impacted by changes in oil prices. These options were terminated at the end of 2015.

GMWB Derivatives, net

The Company formerly offered certain variable annuity products with GMWB riders. The GMWB product is a bifurcated embedded derivative (“GMWB product derivatives”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to GMWB. The reinsurance contracts covering GMWB (“GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB reinsured.

The Company utilizes derivatives (“GMWB hedging instruments”) as part of a dynamic hedging program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB riders. The GMWB hedging instruments hedge changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options and futures, on certain indices including the S&P 500 index, EAFE index and NASDAQ index. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices. The following table presents notional and fair value for GMWB hedging instruments.



	Notional Amount				Fair Value
	December 31, 2016		December 31, 2015		December 31, 2016			December 31, 2015
Customized swaps	$	5,191	$	5,877	$	100		$	131
Equity swaps, options, and futures	1,362		1,362		(27		)	2
Interest rate swaps and futures	3,703		3,740		21			25
Total	$	10,256	$	10,979	$	94		$	158

Macro Hedge Program

The Company utilizes equity swaps, options, futures, and forwards to provide partial protection against the statutory tail scenario risk arising from GMWB and the GMDB liabilities on the Company's statutory surplus. These derivatives cover some of the residual risks not otherwise covered by the dynamic hedging program.

Modified Coinsurance Reinsurance Contracts

As of December 31, 2016 and 2015, the Company had approximately $875 and $895, respectively, of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business, which was structured as a reinsurance transaction. The assets are primarily held in a trust established by the Company. The Company pays or receives cash quarterly to settle the operating results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value of investments subject to interest rate and credit risk. The notional amount of the embedded derivative reinsurance contracts are the invested assets which are carried at fair value and support the reinsured reserves.

Derivative Balance Sheet Classification

For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The Company has also elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals and related cash collateral receivables and payables of OTC-cleared derivative instruments based on clearing house agreements. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts, where the associated gains and losses accrue directly to policyholders are not included in the table below. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. The following tables exclude investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 2 - Fair Value Measurements of Notes to the Consolidated Financial Statements.



	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016			Dec 31, 2015			Dec 31, 2016		Dec 31, 2015		Dec 31, 2016			Dec 31, 2015
Cash flow hedges
Interest rate swaps	$	1,794	$	1,766	$	7		$	38		$	9	$	38	$	(2	)	$	—
Foreign currency swaps	164		143		(16		)	(19		)	10		7		(26		)	(26		)
Total cash flow hedges	1,958		1,909		(9		)	19			19		45		(28		)	(26		)
Fair value hedges
Interest rate swaps	—		23		—			—			—		—		—			—
Total fair value hedges	—		23		—			—			—		—		—			—
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures	2,774		4,710		(411		)	(415		)	249		285		(660		)	(700		)
Foreign exchange contracts
Foreign currency swaps and forwards	382		386		36			4			36		4		—			—
Fixed payout annuity hedge	804		1,063		(263		)	(357		)	—		—		(263		)	(357		)
Credit contracts
Credit derivatives that purchase credit protection	131		249		(3		)	10			—		12		(3		)	(2		)
Credit derivatives that assume credit risk [1]	458		1,435		4			(10		)	5		5		(1		)	(15		)
Credit derivatives in offsetting positions	1,006		1,435		(1		)	(1		)	16		17		(17		)	(18		)
Equity contracts
Equity index swaps and options	100		404		—			15			33		41		(33		)	(26		)
Variable annuity hedge program
GMWB product derivatives [2]	13,114		15,099		(241		)	(262		)	—		—		(241		)	(262		)
GMWB reinsurance contracts	2,709		3,106		73			83			73		83		—			—
GMWB hedging instruments	10,256		10,979		94			158			190		264		(96		)	(106		)
Macro hedge program	6,532		4,548		178			147			201		179		(23		)	(32		)
Other
Modified coinsurance reinsurance contracts	875		895		68			79			68		79		—			—
Total non-qualifying strategies	39,141		44,309		(466		)	(549		)	871		969		(1,337		)	(1,518		)
Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	41,099	$	46,241	$	(475	)	$	(530	)	$	890	$	1,014	$	(1,365	)	$	(1,544	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	121	$	184	$	—		$	(1	)	$	—	$	—	$	—		$	(1	)
Other investments	12,732		11,837		235			250			325		360		(90		)	(110		)
Other liabilities	11,498		15,071		(577		)	(653		)	424		492		(1,001		)	(1,145		)
Reinsurance recoverables	3,584		4,000		141			162			141		162		—			—
Other policyholder funds and benefits payable	13,164		15,149		(274		)	(288		)	—		—		(274		)	(288		)
Total derivatives	$	41,099	$	46,241	$	(475	)	$	(530	)	$	890	$	1,014	$	(1,365	)	$	(1,544	)


[1]	The derivative instruments related to this strategy are held for other investment purposes.


[2]	These derivatives are embedded within liabilities and are not held for risk management purposes.

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.



	(i)			(ii)			(iii) = (i) - (ii)									(v) = (iii) - (iv)
							Net Amounts Presented in the Statement of Financial Position						Collateral Disallowed for Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Derivative Assets [1] (Liabilities) [2]			Accrued Interest and Cash Collateral (Received) [3] Pledged [2]			Financial Collateral (Received) Pledged [4]			Net Amount
As of December 31, 2016
Other investments	$	749		$	588		$	235		$	(74	)	$	101		$	60
Other liabilities	(1,091		)	(396		)	(577		)	(118		)	(655		)	(40		)
As of December 31, 2015
Other investments	$	852		$	692		$	250		$	(90	)	$	99		$	61
Other liabilities	(1,255		)	(499		)	(653		)	(103		)	(753		)	(3		)


[1]	Included in other investments in the Company's Consolidated Balance Sheets.


[2]	Included in other liabilities in the Company's Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.


[3]	Included in other investments in the Company's Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.


[4]	Excludes collateral associated with exchange-traded derivative instruments.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The following table presents the components of the gain or loss on derivatives that qualify as cash flow hedges:



Derivatives in Cash Flow Hedging Relationships
	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)								Net Realized Capital Gains (Losses) Recognized in Income on Derivative (Ineffective Portion)
	2016			2015		2014			2016		2015		2014
Interest rate swaps	$	(16	)	$	3	$	34		$	—	$	—	$	2
Foreign currency swaps	2			—		(10		)	—		—		—
Total	$	(14	)	$	3	$	24		$	—	$	—	$	2



Derivatives in Cash Flow Hedging Relationships
		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
		2016			2015			2014
Interest rate swaps	Net realized capital gains (losses)	$	1		$	(1	)	$	(1	)
Interest rate swaps	Net investment income (loss)	25			33			50
Foreign currency swaps	Net realized capital gains (losses)	(2		)	(9		)	(13		)
Total		$	24		$	23		$	36

As of December 31, 2016, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $13. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to net investment income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows for forecasted transactions, excluding interest payments on existing variable-rate financial instruments, is approximately less than one year.

During the years ended December 31, 2016, 2015, and 2014, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

For the years ended December 31, 2016, 2015, and 2014, the Company recognized in income immaterial gains and (losses) for the ineffective portion of fair value hedges related to the derivative instrument and the hedged item.

Non-qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). The following table presents the gain or loss recognized in income on non-qualifying strategies:



Non-qualifying Strategies Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
	December 31,
	2016			2015			2014
Variable annuity hedge program
GMWB product derivatives	$	88		$	(59	)	$	(2	)
GMWB reinsurance contracts	(14		)	17			4
GMWB hedging instruments	(112		)	(45		)	3
Macro hedge program	(163		)	(46		)	(11		)
International program hedging instruments	—			—			(126		)
Total variable annuity hedge program	(201		)	(133		)	(132		)
Foreign exchange contracts
Foreign currency swaps and forwards	32			5			4
Fixed payout annuity hedge	25			(21		)	(148		)
Japanese fixed annuity hedging instruments	—			—			22
Total foreign exchange contracts	57			(16		)	(122		)
Other non-qualifying derivatives
Interest rate contracts
Interest rate swaps, swaptions, and futures	(18		)	(7		)	(6		)
Credit contracts
Credit derivatives that purchase credit protection	(9		)	3			(6		)
Credit derivatives that assume credit risk	15			(4		)	10
Equity contracts
Equity index swaps and options	30			19			7
Commodity contracts
Commodity options	—			(5		)	—
Other
GMAB and GMWB reinsurance contracts	—			—			579
Modified coinsurance reinsurance contracts	(12		)	46			395
Derivative instruments formerly associated with HLIKK [1]	—			—			(2		)
Total other non-qualifying derivatives	(12		)	46			972
Total [2]	$	(138	)	$	(97	)	$	723

[1] These amounts relate to the termination of the hedging program associated with the Japan variable annuity product due to the sale of HLIKK.

[2] Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 2 - Fair Value Measurements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that would be permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.

As of December 31, 2016



							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	88	$	—		3 years	Corporate Credit/ Foreign Gov.	A	$	45	$	—
Below investment grade risk exposure	43		—			1 year	Corporate Credit	B-	43		—
Basket credit default swaps [4]
Investment grade risk exposure	493		5			3 years	Corporate Credit	BBB+	225		(1		)
Below investment grade risk exposure	22		2			4 years	Corporate Credit	B	22		(2		)
Investment grade risk exposure	158		(2		)	2 years	CMBS Credit	AA+	111		1
Below investment grade risk exposure	57		(13		)	1 year	CMBS Credit	CCC	57		13
Embedded credit derivatives
Investment grade risk exposure	100		100			Less than 1 year	Corporate Credit	A+	—		—
Total [5]	$	961	$	92					$	503	$	11

As of December 31, 2015



							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	118	$	—		1 year	Corporate Credit/ Foreign Gov.	BBB+	$	115	$	(1	)
Below investment grade risk exposure	43		(2		)	2 years	Corporate Credit	CCC+	43		1
Basket credit default swaps [4]
Investment grade risk exposure	1,265		7			4 years	Corporate Credit	BBB+	345		(2		)
Investment grade risk exposure	503		(14		)	6 years	CMBS Credit	AAA-	141		1
Below investment grade risk exposure	74		(13		)	1 year	CMBS Credit	CCC	74		13
Embedded credit derivatives
Investment grade risk exposure	150		148			1 year	Corporate Credit	A+	—		—
Total [5]	$	2,153	$	126					$	718	$	12


[1]	The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.


[2]	Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements, clearing house rules and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.


[3]	The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.


[4]	Includes $1.8 billion as of December 31, 2016 and 2015, of notional amount on swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.


[5]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 2 - Fair Value Measurements.

Derivative Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2016 and 2015, the Company pledged cash collateral associated with derivative instruments with a fair value of $134 and $173, respectively, for which the collateral receivable has been primarily included within other investments on the Company's Consolidated Balance Sheets. As of December 31, 2016 and 2015, the Company also pledged securities collateral associated with derivative instruments with a fair value of $830 and $873, respectively, which have been included in fixed maturities on the Consolidated Balance Sheets. The counterparties have the right to sell or re-pledge these securities.

As of December 31, 2016 and 2015, the Company accepted cash collateral associated with derivative instruments of $333 and $341, respectively, which was invested and recorded in the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of December 31, 2016 and 2015 with a fair value of $107 and $100, respectively, of which the Company has the ability to sell or repledge $81 and $100, respectively. As of December 31, 2016 and 2015, the Company had no repledged securities and did not sell any securities. In addition, as of December 31, 2016 and 2015, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.